Underquoting is a tactic used by a number of agents to attract more people to the advertised property, making it look like there’s lots of interest. The large number of inquiries (from buyers in this intentionally misleading lower price bracket), can also be used as a conditioning toolby many agents to convince unrealistic vendors to meet the market price. This deceitful tactic often undersells the property.
Dishonest agents will advertise a price to potential buyers that can be 20% below the reserve. For example, a house will be quoted from $800,000 – $900,000. This naturally seems like a bargain considering the neighbouring houses are selling for over a million dollars. However, smart buyers know that it can’t be this cheap.
The property ultimately sells above the quoted range, but often still short of what the sellers really wanted. Under the pressure of an auction and having outlaid thousands of dollars in marketing expenses, these vendors are often forced into selling for less.
Not only is underquoting unethical, it is also illegal. Changes to the Estate Agents Act in recent years have outlawed the advertisement of a lower price than the vendor’s asking price. An agent should base their estimate on actual market conditions, as well as recent comparable sales in the area. If there is a price range rather than a single price, the highest figure should not be less than the asking price.
The difficulty with policing underquoting is that it can be costly, in terms of time, money and resources, and the penalties have been declared by some to be a ‘slap on the wrist’. Every property and seller are different, so there is no definitive scale on which to base an estimate. Sellers can also change their asking price up until the day of the auction, making it difficult to prove that an agent is in the wrong. As a result, underquoting is a practice that continues to tarnish the image of the real estate industry as a whole.
If you’re selling your home, do your research. Find an agent with a reputation for excellence and honesty, an agent you can trust. If you’re buying a home, be mindful that a bargain will rarely turn out to be as it appears. Do some research and you will soon uncover the truth.
Paul Kounnas is an ethical Melbourne based Real Estate agent.